In 2024, the Reserve Bank of India (RBI) sent an unambiguous message to India’s financial institutions—compliance is not a formality. It is a structural imperative. With over ₹56 crore in monetary penalties levied across 304 enforcement actions, the RBI moved from symbolic reprimand to systemic discipline. The penalties cut across sectors—co-operative banks, NBFCs, commercial banks, and payment system operators—signalling that no entity, regardless of size or structure, is beyond the regulator’s reach.

AK & Partners’ RBI Regulatory Penalty Report 2024 presents the first sector-wide analysis of these trends. It goes beyond listing who was fined and instead focuses on the why. It calls for institutions to introspect whether their compliance functions are operationally embedded or simply reactive.

Urban Co-operative Bank Penalties- An administrative failure

The highest single penalty of the year—₹5.93 crore—was imposed on one of the top cooperative banks in Western India, primarily for governance failures. Credit facilities were extended to entities in which directors or their relatives were interested. Donations were made to trusts linked to board members. Cybersecurity protocols were not implemented. NPAs were incorrectly classified.

Each violation was avoidable. Each lapse reflected a failure to embed compliance into decision-making systems. The case was not exceptional—it was illustrative. It demonstrated how inadequate internal controls and board-level disengagement with regulatory obligations can lead to regulatory action that severely impacts institutional credibility.

KYC Penalties: Small Lapses, Serious Consequences

The penalty regime in 2024 also reinforced RBI’s focus on Know Your Customer (KYC) compliance as the foundational layer of financial regulation. Many NBFCs were penalised not proactively for failing to periodically update KYC data, risk-categorise customers, or maintain ownership over core compliance functions.

In one case, a microfinance company delegated its KYC decision-making to third-party agents. In another, an NBFC failed to install adequate fraud monitoring systems. These cases were penalised under RBI’s general directions and sector-specific frameworks. The regulator did not wait for fraud or customer loss to occur. It imposed penalties to enforce institutional discipline and risk containment proactively.

The underlying insight is this: compliance is not about reacting to a problem. It is about ensuring that the problem never arises. This requires integrating regulatory expectations into internal processes, technology architecture, employee training, and management oversight.

Compliance is a Design Problem, not a Documentation One

The report illustrates that the RBI penalised compliance failures not because of knowledge gaps or resource constraints. They were design failures—compliance frameworks that existed on paper but not in practice. In several cases, policies were outdated or inconsistently implemented across business verticals. Internal audits did not flag apparent risks. Directors were unaware of regulatory breaches until enforcement notices were issued.

For instance, multiple penalties were issued for allotting more than one Unique Customer Identification Code (UCIC) to the same customer due to poor integration between core banking systems and customer onboarding platforms. Others failed to update customer documentation under the 2016 KYC Master Directions. These are not complex breaches. But they are systemic ones. They point to a culture of minimal compliance, where processes are optimised for transaction speed rather than regulatory accuracy.

Leadership and Compliance Must Align

The most significant insight from this year’s penalty trends is that compliance is no longer a back-office function. It is a leadership priority. Institutions must shift from a model of defensive documentation to one of proactive governance. This means:

    • Framing compliance as a strategic risk function, not an operational obligation.
    • Conducting regular compliance audits that test policy effectiveness, not just adherence.
    • Engaging advisors who understand RBI regulations and how they are interpreted by the regulator

The RBI’s powers to impose penalties are retrospective, which means that even historic lapses—discovered during routine inspections—can attract enforcement action. Institutions that consider themselves compliant merely because no violation has been found are already vulnerable.

Why This Report Matters

The RBI Regulatory Penalty Report 2024 is intended to serve as a diagnostic and planning tool. It covers:

    • Sectoral breakdowns of enforcement trends.
    • Case studies from across banking, NBFC, and payment systems.
    • Thematic insights on recurring violations and their institutional causes.
    • Geographic mapping of penalty patterns and compliance hotspots.

The report presents an opportunity for CXOs, compliance officers, and institutional investors to assess how closely aligned their internal frameworks are with regulatory expectations. More importantly, it enables institutions to benchmark their systems against those that have been penalised and design preventive strategies accordingly.

Read the report here: https://www.akandpartners.in/copy-of-handbooks-guides